Attorneys Who Know.
Attorneys Who Care.

How to strategically use depreciation for business assets

On Behalf of | Oct 12, 2023 | Estate Planning |

When you own a business and want to minimize your tax liabilities, one option is learning to strategically utilize depreciation on your business assets. U.S. News and World Report explained for 2023, tax laws allow for an 80% bonus depreciation that will phase out by 2026.

Depreciation is an accounting method that allows companies to deduct the cost of an asset over its useful life. However, for some assets, businesses can accelerate depreciation, enabling them to reap tax benefits more quickly.

The basics of accelerating

Accelerating depreciation involves expensing a larger portion of an asset’s cost in the earlier years of its useful life than under standard depreciation methods. This approach has several benefits for businesses, including providing immediate tax savings, increasing cash flow and providing a quicker return on investment.

Using accelerated depreciation

To utilize accelerated depreciation, you can use the Modified Accelerated Cost Recovery System for tax purposes. Under MACRS, you categorize assets into classes with specified recovery periods. It allows you to easily accelerate depreciation deductions in the earlier years.

It is important to note that not all assets qualify for accelerated depreciation. The IRS has specific rules and guidelines regarding which assets are eligible and the applicable depreciation methods.

Accelerating depreciation for business purchases is a valuable financial strategy that can provide quick benefits. It can allow you to optimize your financial position and allocate resources more effectively. Ultimately, strategic depreciation planning can be a powerful tool you can legally use to benefit your business and your bottom line.